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2021 (10) TMI 1219 - HC - Income TaxTDS u/s 194J - Accrual of income - payment for service charges - whether the payment paid by the assessee includes the service charges and constitutes the income - Assessee s main ground that no service charges were paid to the KIADB and the amount of ₹ 1225 Crores paid to the KIADB is part of the compensation to the lands acquired requires consideration - HELD THAT - The liability to deduct tax would arise only if payment was made towards service charges by the assessee which attracts tax liability. The primary factor to attract Section 194J is the ingredient of income comprised therein as held in Kalyani Steels Ltd. 2018 (5) TMI 152 - KARNATAKA HIGH COURT . In order to establish the same,assessee has referred to Annexure to Schedule D Annexure D1; deposit from allottees in the balance sheet of the KIADB as at 31.03.2013, copy of which is made available at page 179 of the appeal memo. In Sl.No.16 of the said Annexure D1, Code No.5047 shows deposit of Bangalore Metro Rail Project as ₹ 12250000050.00 and it is submitted that the same tallies with the payment shown by the assessee for the assessment years in question. It is vehemently contended that ledger accounts in books of KIADB reflects that no service charges from BMRCL has been collected. On the contrary, the assessment orders of the KIADB placed before the Court refers to certain sum shown as the amount received towards service charges. However, the break-up of the same is not available. Be that as it may, it is the strong case of the assessee that the amount of ₹ 1225 Crores paid by it, is shown as deposit by the KIADB. The aforesaid factual aspects requires re-examination by the Tribunal being the last fact finding authority inasmuch as the payment of ₹ 1225 Crores made by the assessee vis- -vis the accounts of KIADB relating to the said transaction - A finding is necessary whether ₹ 1225 Crores includes the service charges or not which is the primary dispute. Hence, we restore the matter to the file of the Tribunal sans answering the substantial questions of law, setting aside the impugned order, keeping open all the rights and contentions of the parties.
Issues Involved:
1. Dispute over levy of service charges between BMRCL and KIADB. 2. Applicability of Tax Deduction at Source (TDS) on service charges. 3. Applicability of Section 194J of the Income Tax Act. 4. KIADB's registration under Section 12A and its impact on TDS. 5. Levy of interest under Section 201(1A). Detailed Analysis: 1. Dispute over Levy of Service Charges: The appellant, a Special Purpose Vehicle for the Bangalore Metro Rail Project, paid ?1,225 Crores to KIADB for land acquisition. The appellant argued that the service charges do not constitute income for KIADB as the rate is still under dispute and pending final determination by the Karnataka Government. The Tribunal failed to appreciate these material aspects, and the service charges should only be considered income upon final determination by the appropriate authority. 2. Applicability of TDS on Service Charges: The appellant contended that no TDS was required on the compensation amount paid to KIADB as the service charges did not constitute income. The Tribunal and lower authorities held that the appellant should have deducted tax at source under Section 201, treating the appellant as an assessee in default and levying interest under Section 201(1A). The appellant argued that since no part of the ?1,225 Crores was claimed as expenses and KIADB did not offer any income in this regard, the service charges cannot constitute income for taxation. 3. Applicability of Section 194J: The appellant argued that Section 194J, which mandates TDS on fees for professional or technical services, was not applicable as the service charges did not constitute income. The Tribunal dismissed this argument, but the appellant cited the case of Commissioner of Income Tax vs. Kalyani Steels Ltd., where it was held that TDS under Section 194J applies only if there is income comprised in the payment. The appellant maintained that the service charges were not recognized as income by KIADB and were shown as deposit receipts. 4. KIADB's Registration under Section 12A: The appellant argued that since KIADB is registered under Section 12A, it is not liable to pay tax on the service charges, and thus, no TDS was required. The Tribunal and revenue authorities dismissed this argument, stating that the nature of assessment in the hands of the payee is irrelevant and Section 194J does not impose an obligation on the assessee to ascertain the tax liability of the deductee. 5. Levy of Interest under Section 201(1A): The appellant challenged the levy of interest under Section 201(1A), arguing that the service charges did not constitute income and hence, no TDS was required. The Tribunal upheld the interest levy, but the appellant cited the case of Commissioner of Income Tax vs. Eli Lilly & Co. [India] [P.] Ltd., where it was held that interest under Section 201(1A) is compensatory and applies only if the principal tax liability exists. Conclusion: The High Court found that the primary dispute was whether the ?1,225 Crores paid by the appellant included service charges and constituted income. The Tribunal’s factual findings on this matter were deemed insufficient. Therefore, the High Court set aside the Tribunal’s order and remanded the matter for re-examination, keeping all rights and contentions open. The Tribunal was directed to reconsider the matter and pass appropriate orders in accordance with law. Order: 1. Appeals allowed in part. 2. Tribunal’s common order dated 05.08.2016 set aside. 3. Matter remanded to Tribunal for re-consideration. 4. Tribunal to pass appropriate orders in an expedite manner, considering the observations made by the High Court.
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